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HMRC internal manual

Business Income Manual

Meaning of trade: mutual trading and members clubs: distributions: dividends from a co-operative etc society

S132 Corporation Tax Act 2009 (CTA 2009)

The sort of business carried on by an ordinary co-operative society is not mutual trading. The company should pay Corporation Tax in the normal way on any profits unless, exceptionally, all of the conditions for mutual trading (BIM24100) are satisfied.

Co-operatives that are registered as industrial and provident societies (IPS) are covered in CTM40500 onwards.

‘Dividends’ on purchases received by a trader from a co-operative society should be regarded as discounts and taken into account for tax purposes to the extent to which those purchases qualify for a tax deduction or allowance. (See Pope v Beaumont [1941] 24TC78.)

‘Dividends’ on sales made by a trader to or through co-operative societies (for example, egg packing stations and auction societies) should be treated as additions to the sale proceeds and, therefore, as trading receipts.

‘Dividend’ in this context means any sum that the society would be entitled to deduct as an expense under S132 CTA 2009 if it were an IPS, that is any discount, rebate, dividend or bonus granted by the society to members in respect of their transactions with it. A bonus satisfied in whole or in part by the allotment of shares in the society is within this definition whether or not the member is given the option of taking cash instead of shares (see Staffordshire Egg Producers Ltd v Spencer [1963] 41TC131). Where, in such a case, a trader receives an allotment of shares, the amount to be included as a receipt of their trade is the nominal value of the shares. A ‘deferred bonus’, that is a bonus treated as an interest-bearing loan repayable at some future date, should, where the recipient is a trader, be included as a receipt of the trade when it is recognised under generally accepted accounting practice - see BIM31015.